Equity and Trusts – Introduction & Historical Origins (3)

1. Equity and Trusts – Introduction & Historical Origins (3)

2. Medieval society Key perceptions: • link between divine justice and man made laws made religion dominant • sense of communal order derived in part from the understanding gained through religion of societal roles and duties • customary practises • Dutiful aspect of relationships reflected in contractual and other legal relationships influenced by teaching of medieval scholastic philosophers like Thomas Aquinas (1226-1274). and his Summa Theologica (1265-1274)

3. The just price From Aquinas came the concept of the just price: a bargain had to be equitable – both sides had to gain equally from a bargain. Influence lasted until the last vestiges of the common law offences against unfair bargaining and market fixing were played out in the early 1800s

4. The fair wage The concept of the just price led naturally to the concept of the fair wage – a feature of English law up until the middle of the 18th C.

5. Medieval community Nature of trade was essentially within a closed market thus more reliant on the just price Consumers bought directly from one another Services for social as much as for customary reasons were performed within small communities for a fair allowance not for profit.

6. A gradual transition from the old world to the new Saw freeing up the rules on interest charges that Move away from the agrarian and customary society Economic change but also growing secularism - an abandonment or casting off of the social and ethical framework provided by the church

7. Thomas Hobbes (1588 –1679) “Justice of actions is by writers divided into commutative and distributive: and the former they say consisteth in proportion arithmetical; the latter in proportion geometrical. Commutative, therefore, they place in the equality of value of the things contracted for; and distributive, in the distribution of equal benefit to men of equal merit. As if it were injustice to sell dearer than we buy, or to give more to a man than he merits. The value of all things contracted for is measured by the appetite of the contractors, and therefore the just value is that which they be contented to give. And merit (besides that which is by covenant, where the performance on one part meriteth the performance of the other part, and falls under justice commutative, not distributive) is not due by justice, but is rewarded of grace only. And therefore this distinction, in the sense wherein it useth to be expounded, is not right. To speak properly, commutative justice is the justice of a contractor; that is, a performance of covenant in buying and selling, hiring and letting to hire, lending and borrowing, exchanging, bartering, and other acts of contract.” Leviathan published in 1651 (Part 1 Chapter 15)

8. Statement of central importance “the value of all things contracted for is measured by the Appetite of the contractors; and therefore the just value, is that which they be contented to give”.

9. Liberalism Stable market relations necessitate the enforcement of contract Liberalism was a powerful political message of individual freedom Move away from medieval Christian ethics and religious observance were key to triumph of the free market and the changes this entailed for the exercise of equity

10. Custom Customs and traditions of rural existence were one of its defining features from before the middle ages. Many would not survive the coming of market capitalism and changes that necessarily accompanied it in legal thought – especially those connected with the nature of property

11. E P Thompson “What was happening, from the time of Coke to that of Blackstone, was a hardening and concentration of the notion of property in land, and a reification of usages into properties which could be rented or sold, or willed. For good reason Blackstone entitled volume two of his commentaries, Of the Rights of Things, - not because there rights were a novelty (they were an ancient chapter of the law) but because the market in these rights was never more active, or more prolific in tests at law than at this time.” Customs in Common Page 135

12. E P Thompson “It was always a problem to examine the commons within capitalist categories. There was something uncomfortable about them. Their very existence prompted questions about the origins of property and the about historical title to land. “In the sixteenth and seventeenth centuries landowners had asserted their titles in land against the prerogative of the King, and copyholders had asserted their rights titles and customs against their lords. They therefore had discarded theories of the origin of divine right ... When Locke sat down all this was stewing around in his mind.”

13. E P Thompson “Agrarian custom was never fact. It was ambience. It may best be understood with the aid of Bourdieu’s concept of “habitus” – a lived environment comprised of practices, inherited expectations, rules which both determined limits to usages and disclosed possibilities, norms and sanctions both of law and neighbourhood pressures.”

14. Customary rights Such activities included for example collecting wood, grazing animals, gleaning and others of a purely local variety.

15. Customary rights The point concerns not just patterns of economic development which required a new legal regime but also the way in which the loss of rights had to be rationalised by the development of new theories of rights to property

16. Custom and change Custom was a way of conceiving of human relationships – an expression of communal justice in its own right The changing pattern of economic development required a new legal regime in respect of land and in the conception of customary rights – this was also the case in equity where economics and the stresses of social transformation resulted in new market relationships and the need for new ways of dealing with these through the law

17. Liberalism Liberalism was predicated in part on a new way of seeing social relationships – individualism – and a rejection of the Aristotelian belief implicit in Christianity of communal relations

18. Liberalism The bond between fact and value - the idea of morality as interwoven with the world – a notion which had survived in the form of natural law thinking from Aristotle through medieval Christianity onwards was severed and individual autonomy became the fundamental human condition

19. Individual choice Political individualism accompanied by religious individualism – the idea of conscience as God’s direction – through increasing secularism became individual conscience – the individual human conscience no longer thought of an expression of God’s direction but as autonomous individualism

20. Facts and values Separation answered needs of law in face of social change: the rise of market freedoms the dissolution of custom the growth of industrialism the development of communications the advent of larger and larger towns and cities new and more complex market relationships

21. Capitalism “Basically, then, the pure law of contract is an are of what we can call abstract relationships. “Pure” contract doctrine is blind to details of subject matter and person. It does not ask who buys and who sells and what is bought and sold … Contract law is abstraction – what is left in the law relating to agreements when all particularities of person and subject matter are removed. The abstraction of classical contract law is not unrealistic; it is a deliberate renunciation of the particular, a deliberate relinquishment of the temptation to restrict untrammeled individual autonomy or the completely free market in the name of social policy. The law of contract is, therefore, roughly co-extensive with the free market. Liberal nineteenth century economics fits in neatly with the law of contract so viewed.” Lawrence Friedman - Contract Law in America 1967.  

22. Capitalism That liberal nineteenth century economics fit neatly with a purist view of the law of contract of the later 20th c is testament to the fundamental changes that had occurred by the middle of the 19th c in response to market forces and the success of the political conception of human relations implicit in liberal individualism

23. Capitalism The earlier conception of contract was that it was akin to a remedy – something interposed by the court between the parties to create a just outcome

24. Changes in law The courts of the 19th C focussed only on the facts – was there a contract or not? what were its terms? Had these been breached? The 18th C court focus on values led to questions such as was the outcome of the transaction fair? If not should the agreement be remade in order to make it so?

25. Recreating contract “an agreement by which two parties reciprocally promise and engage, or one of them singly, promises and engages to the other to give some particular thing, or to do or to abstain from doing some particular act” M Pothier “A Treatise on the law of Obligations or Contracts” (1806)

26. Addison 1849 “The law of contracts may justly indeed to be said to be a universal law adapted at all times and races, and all places and circumstances, being founded upon those great and fundamental principles of rights and wrong which are immutable and eternal, and present a striking uniformity among all nations, whatever seas or mountains may separate them, or how many ages soever have elapsed between the periods of their existence; being widely different from those laws, which proceeding merely from positive institution are consequently as various as the wills and fancies of those who enact them.”

27. The US Process of creating abstract rules and generaliseable principles was not confined to England but was replicated in the United States.

28. The US Growing secularism in Britain speeded social change – the US is much more difficult to read in this respect.

29. The US American law moved away from system of status or function categories in tort (like agents, doctors, attorneys, bankers, passenger carriers etc) and in contract law functional categories (like sales, insurance, railroads, telegraphs, negotiable instruments etc) toward conceptual headings such as negligence in tort and the will theory in contract

30. A new law 1870 to 1900 was the high tide of US trend to the generalisation and systematization of legal concepts and the creation of a new private law Formalism in the US sprung from (inter alia) English liberal political thinking between the 17th and 19th Cs

31. The US By beginning of the 19th Century Equity had been almost completely subordinated to the common law Just as with the Judicature Acts in England – the New York Field Code of 1848 marked the end of a separate system of equitable substantive justice in the US

32. Legal Texts Changes reflected in legal texts of the time - not only in the US but in England – also in legal teaching so that subjects could be broken down in a similar to follow a pattern of rather abstract concepts

33. Pennington v Waine Unpredictability is undesirable since it is said to lead to commercial uncertainty. Criticism of such equitable intervention is not confined to the issue of imperfect gifts: see also proprietary estoppel: Yaxley v Gotts[2000] 1 All ER 711 (All ER Rev 2000, pp 242–244); Gillett v Holt[2000] 2 All ER 289 (All ER Rev 2000, pp 246–247) and the development or the constructive trust: Banner Homes Group plc v Luff Developments Ltd[2000] 2 All ER 117 (All ER Rev 2000, pp 245–246).

34. Pennington v Waine – an 18th C echo “Thus explained, the principle that equity will not assist a volunteer at first sight looks like a hard-edged rule of law not permitting much argument or exception. Historically the emergence of the principle may have been due to the need for equity to follow the law rather than an intuitive development of equity. The principle against imperfectly constituted gifts led to harsh and seemingly paradoxical results. Before long, equity had tempered the wind to the shorn lamb (i.e. the donee). It did so on more than one occasion and in more than one way.”

35. Equity today “the rules of equity are not like the rules of the common law supposed to be established from time immemorial. It is perfectly well known that they have been established from time to time … No doubt they were invented for the purpose of securing the better administration of justice but still they were invented.”Jessell MR said in Re Hallet’s Estate [1880] 13 Ch D 696 t